Stock Market Sensitivity to Macroeconomic Factors: Evidence from China and India

Abstract

The purpose of this study is to analyse the impact of Chinese macroeconomic factors on Shanghai Stock Exchange (SSE) Composite returns and Indian macroeconomic factors on Nifty returns based on monthly data from January 1998 to December 2018. This study adopts quantile regression approach. The QR allows examining the conditional dependence of specific quantile of SSE and Nifty returns with respect to the conditioning factors. The authors present results for two sample periods that are pre-recession and recession period from 1998 to 2008 and the post-recession period from 2009 to 2018. This paper also documents quite interesting and useful results for the entire period. From the results, It is concluded that Chinese consumer price index significantly affects the SSE returns only for lower quantiles. However, Indian consumer price index has a significant and positive impact on the Nifty returns for the upper quantiles. Further, Chinese interest rates and Indian interest rates have no impact on the SSE and Nifty returns respectively across the different quantiles. Moreover, the Chinese exchange rate influence the SSE returns at the extreme dataset. However, the Indian exchange rate is insignificant. It is important to note that the dependence structure of China shows a negligible change during the post-recession period. Conversely, the dependence structure has changed significantly for India post-recession. The implication of this paper would guide stock market participants.